BILL NUMBER: AB 1653	AMENDED
	BILL TEXT

	AMENDED IN SENATE  AUGUST 17, 2010
	AMENDED IN SENATE  AUGUST 2, 2010
	AMENDED IN SENATE  JULY 15, 2010

INTRODUCED BY   Assembly Member Jones
   (Principal coauthor: Senator Alquist)

                        JANUARY 14, 2010

   An act to amend Sections 14167.1, 14167.2, 14167.3, 14167.5,
14167.6, 14167.10, 14167.11, 14167.12, 14167.14, 14167.15, 14167.31,
 and  14167.32, 14167.35, and 14167.36 of, 
to add Article 5.227 (commencing with Section 14168) to Chapter 7 of
Part 3 of Division 9 of,  and to repeal and add Section
14167.9 of, the Welfare and Institutions Code, relating to Medi-Cal,
making an appropriation therefor, and declaring the urgency thereof,
to take effect immediately.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1653, as amended, Jones. Medi-Cal: hospitals: managed health
care plans: mental health plans: quality assurance fee.
   Existing law establishes the Medi-Cal program, administered by the
State Department of Health Care Services, under which basic health
care services are provided to qualified low-income persons. The
Medi-Cal program is, in part, governed and funded by federal Medicaid
provisions.
   Existing law, subject to federal approval, requires the department
to make supplemental payments for certain services, as specified, to
private hospitals, nondesignated public hospitals, and designated
public hospitals, as defined, for subject federal fiscal years, as
defined.
   This bill would make various changes to the formulas used to
determine the amount of supplemental payments made to private and
designated public hospitals.  This bill would expand the
definition of a nondesignated public   hospital. 
   Existing law  proscribes   prescribes 
certain deadlines by which the above-described supplemental payments
are required to be made to hospitals depending upon the federal
fiscal year for which the payment is to be made.
   This bill would require the department to make to hospitals the
supplemental payments for the 2008-09, 2009-10, and 2010-11 federal
fiscal years in 7 payments, as specified.
   Existing law requires the department to make enhanced payments to
managed health care plans, as defined, and requires the state to make
enhanced payments to mental health plans, as defined, for each
subject federal fiscal year, as specified. Existing law requires the
managed health care plans and mental health plans that received
enhanced payments to make supplemental payments to subject hospitals,
as defined, pursuant to specified formulas.
   This bill would, instead, refer to the payments made by the
department to the managed health care plans and mental health plans
as increased capitation payments. The bill would require the
department to determine the amount of increased capitation payments
for each Medi-Cal managed care plan and to consider certain factors
in making that determination. The bill would prohibit the amount of
increased capitation payments to each Medi-Cal managed  health
 care  health  plan from exceeding an amount
that results in capitation payments that are certified by the state's
actuary as meeting federal requirements. The bill would require each
managed health care plan to expend 100% of any increased capitation
payments it receives from the department on hospital services.
   Existing law, subject to federal approval, also imposes, as a
condition of participation in state-funded health insurance programs
other than the Medi-Cal program, a quality assurance fee, as
specified, on certain general acute care hospitals through and
including December 31, 2010. Existing law creates the Hospital
Quality Assurance Revenue Fund in the State Treasury and requires
that the money collected from the quality assurance fee be deposited
into the fund. Existing law provides that the moneys in the fund
shall, upon appropriation by the Legislature, be available only for
certain purposes, including providing the above-described
supplemental payments to hospitals and health care coverage for
children.
   This bill would modify the formulas used in calculating the amount
of the quality assurance fee imposed on acute care hospitals
pursuant to the above-described provisions.
   The bill would provide that the quality assurance fee shall not be
imposed on a converted hospital, as defined, for a subject federal
fiscal year in which the hospital becomes a converted hospital or for
subsequent federal fiscal years.
   Prior to federal approval of implementation of the above-described
provisions, existing law requires each general acute care hospital
that is not an exempt facility to certify to the best of its
knowledge that the hospital is prepared to pay the aggregate quality
assurance fee, as defined.
   This bill would delete the above-described certification
requirement. The bill would require hospitals to pay the quality
assurance fee in 7 equal installments, as specified and subject to
federal approval of the above-described provisions.
   Existing law authorizes the department, as necessary to receive
federal approval for the implementation of the above-described
provisions, to increase or decrease certain amounts used to calculate
the quality assurance fee.
   This bill would delete the above-described authorization. 

   Existing law, effective January 1, 2011, and subject to the
authority of a subsequent statute enacted to take effect on or after
January 1, 2011, that meets certain conditions, imposes a quality
assurance fee in a manner necessary to obtain federal Medicaid
matching funds that shall be due and payable to the department by
each general acute care hospital at specified rates for the purpose
of making Medi-Cal payments to hospitals.  
   This bill would, effective January 1, 2011, impose on each general
acute care hospital that is not an exempt facility, as defined, a
quality assurance fee, as a condition of participation in
state-funded health insurance programs, other than the Medi-Cal
program. This bill would require the quality assurance fee to be
computed starting on the effective date of the bill and continue
through and including June 30, 2011. The bill would require the
proceeds from the fee to be used for the same purposes as the
above-described quality assurance fee that is imposed on hospitals
through and including December 31, 2010. The bill would provide that
the method of calculation and collection of the quality assurance fee
is to be determined in an unspecified manner.  
   This bill would require the director to seek federal approvals or
waivers as may be necessary to implement the above-described
provisions and to obtain federal financial participation to the
maximum extent possible with the proceeds from the quality assurance
fee paid pursuant to those provisions.  
   This bill would require the fee payments and any related federal
reimbursement under the above-described provisions that become
effective January 1, 2011, to be deposited in the Hospital Quality
Assurance Revenue Fund. The bill would continuously appropriate these
moneys in an unspecified manner. 
   This bill would declare that it is to take effect immediately as
an urgency statute.
   Vote: 2/3. Appropriation: yes. Fiscal committee: yes.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 14167.1 of the Welfare and Institutions Code is
amended to read:
   14167.1.  (a) "Acute psychiatric days" means the total number of
Short-Doyle administrative days, Short-Doyle acute care days, acute
psychiatric administrative days, and acute psychiatric acute days
identified in the Final Medi-Cal Utilization Statistics for the
2008-09 state fiscal year as calculated by the department on
September 15, 2008.
   (b)  (1)    "Converted hospital"
means a private hospital that becomes a designated public hospital
or a nondesignated public hospital after the implementation date, a
nondesignated public hospital that becomes a private hospital or a
designated public hospital after the implementation date, or a
designated public hospital that becomes a private hospital or a
nondesignated public hospital after the implementation date. 

   (2) A private hospital shall be considered a converted hospital if
both of the following apply:  
   (A) After the implementation date, the hospital's ownership is
transferred to a nonprofit corporation and that corporation's sole
corporate member is a health care district governed by Division 23
(commencing with Section 32000) of the Health and Safety Code.
 
   (B) The hospital is operating a hospital owned by a health care
district. 
   (c) "Current Section 1115 Waiver" means California's Medi-Cal
Hospital/Uninsured Care Section 1115 Waiver Demonstration in effect
on the effective date of the article.
   (d) "Designated public hospital" shall have the meaning given in
subdivision (d) of Section 14166.1 as that section may be amended
from time to time.
   (e) "General acute care days" means the total number of Medi-Cal
general acute care days paid by the department to a hospital in the
2008 calendar year, as reflected in the state paid claims files on
July 10, 2009.
   (f) "High acuity days" means Medi-Cal coronary care unit days,
pediatric intensive care unit days, intensive care unit days,
neonatal intensive care unit days, and burn unit days paid by the
department during the 2008 calendar year, as reflected in the state
paid claims files on July 10, 2009.
   (g) "Hospital inpatient services" means all services covered under
Medi-Cal and furnished by hospitals to patients who are admitted as
hospital inpatients and reimbursed on a fee-for-service basis by the
department directly or through its fiscal intermediary. Hospital
inpatient services include outpatient services furnished by a
hospital to a patient who is admitted to that hospital within 24
hours of the provision of the outpatient services that are related to
the condition for which the patient is admitted. Hospital inpatient
services include physician services only where the service is
furnished to a hospital inpatient, the physician is compensated by
the hospital for the service, and the service is billed to Medi-Cal
by the hospital under a provider number assigned to the hospital.
Hospital inpatient services do not include services for which a
managed health care plan is financially responsible.
   (h) "Hospital outpatient services" means all services covered
under Medi-Cal furnished by hospitals to patients who are registered
as hospital outpatients and reimbursed by the department on a
fee-for-service basis directly or through its fiscal intermediary.
Hospital outpatient services include physician services only where
the service is furnished to a hospital outpatient, the physician is
compensated by the hospital for the service, and the service is
billed to Medi-Cal by the hospital under a provider number assigned
to the hospital. Hospital outpatient services do not include services
for which a managed health care plan is financially responsible, or
services rendered by a hospital-based federally qualified health
center for which reimbursement is received pursuant to Section
14132.100.
   (i) (1) "Implementation date" means the latest effective date of
all federal approvals or waivers necessary for the implementation of
this article and Article 5.22 (commencing with Section 14167.31),
including, but not limited to, any approvals on amendments to
contracts between the department and managed health care plans or
mental health plans necessary for the implementation of this article.
The effective date of a federal approval of a contract amendment
shall be the earliest date to which the computation of payments under
the contract amendment is applicable that may be prior to the date
on which the contract amendment is executed.
   (2) If federal approval is sought initially for only the 2008-09
federal fiscal year and separately secured for subsequent federal
fiscal years, the implementation date for the 2008-09 federal fiscal
year shall occur when all necessary federal approvals have been
secured for that federal fiscal year.
   (j) "Individual hospital acute psychiatric supplemental payment"
means the total amount of acute psychiatric hospital supplemental
payments to a subject hospital for a quarter for which the
supplemental payments are made. The "individual hospital acute
psychiatric supplemental payment" shall be calculated for subject
hospitals by multiplying the number of acute psychiatric days for the
individual hospital for which a mental health plan was financially
responsible by four hundred eighty-five dollars ($485) and dividing
the result by 4.
   (k) (1) "Managed health care plan" means a health care delivery
system that manages the provision of health care and receives prepaid
capitated payments from the state in return for providing services
to Medi-Cal beneficiaries.
   (2) (A) Managed health care plans include, but are not limited to,
county organized health systems, prepaid health plans, and entities
contracting with the department to provide services pursuant to
two-plan models and geographic managed care. Entities providing these
services contract with the department pursuant to any of the
following:
   (i) Article 2.7 (commencing with Section 14087.3).
   (ii) Article 2.8 (commencing with Section 14087.5).
   (iii) Article 2.81 (commencing with Section 14087.96).
   (iv) Article 2.91 (commencing with Section 14089).
   (v) Article 1 (commencing with Section 14200) of Chapter 8.
   (vi) Article 7 (commencing with Section 14490) of Chapter 8.
   (B) Managed health care plans do not include any mental health
plan contracting to provide mental health care for Medi-Cal
beneficiaries pursuant to Part 2.5 (commencing with Section 5775) of
Division 5.
   (l) "Medi-Cal managed care days" means the total number of general
acute care days, including well baby days, listed for the county
organized health system and prepaid health plans identified in the
Final Medi-Cal Utilization Statistics for the 2008-09 state fiscal
year, as calculated by the department on September 15, 2008, except
that the general acute care days, including well baby days, for the
Santa Barbara Health Care Initiative shall be derived from the Final
Medi-Cal Utilization Statistics for the 2007-08 state fiscal year.
   (m) "Medicaid inpatient utilization rate" means Medicaid inpatient
utilization rate as defined in Section 1396r-4 of Title 42 of the
United States Code and as set forth in the final disproportionate
share hospital eligibility list for the 2008-09 state fiscal year
released by the department on October 22, 2008.
   (n) "Mental health plan" means a mental health plan that contracts
with the State Department of Mental Health to furnish or arrange for
the provision of mental health services to Medi-Cal beneficiaries
pursuant to Part 2.5 (commencing with Section 5775) of Division 5.
   (o) "New hospital" means a hospital that was not in operation
under current or prior ownership as a private hospital, a
nondesignated public hospital, or a designated public hospital for
any portion of the 2008-09 state fiscal year. 
   (p) "Nondesignated public hospital" means a public hospital that
is licensed under subdivision (a) of Section 1250 of the Health and
Safety Code, is not designated as a specialty hospital in the
hospital's annual financial disclosure report for the hospital's
latest fiscal year ending in 2007, and satisfies the definition in
paragraph (25) of subdivision (a) of Section 14105.98, excluding
designated public hospitals.  
   (p) "Nondesignated public hospital" means either of the following:
 
   (1) A public hospital that is licensed under subdivision (a) of
Section 1250 of the Health and Safety Code, is not designated as a
specialty hospital in the hospital's annual financial disclosure
report for the hospital's latest fiscal year ending in 2007, and
satisfies the definition in paragraph (25) of subdivision (a) of
Section 14105.98, excluding designated public hospitals.  
   (2) A tax-exempt nonprofit hospital that is licensed under
subdivision (a) of Section 1250 of the Health and Safety Code, is not
designated as a specialty hospital in the hospital's annual
financial disclosure report for the hospital's latest fiscal year
ending in 2007, is operating a hospital owned by a local health care
district, and is affiliated with the health care district hospital
owner by means of the district's status as the nonprofit corporation'
s sole corporate member. 
   (q) "Outpatient base amount" means the total amount of payments
for hospital outpatient services made to a hospital in the 2007
calendar year, as reflected in state paid claims files on January 26,
2008.
   (r) "Private hospital" means a hospital that meets all of the
following conditions:
   (1) Is licensed pursuant to subdivision (a) of Section 1250 of the
Health and Safety Code.
   (2) Is in the Charitable Research Hospital peer group, as set
forth in the 1991 Hospital Peer Grouping Report published by the
department, or is not designated as a specialty hospital in the
hospital's Office of Statewide Health Planning and Development Annual
Financial Disclosure Report for the hospital's latest fiscal year
ending in 2007.
   (3) Does not satisfy the Medicare criteria to be classified as a
long-term care hospital.
   (4) Is a nonpublic hospital, nonpublic converted hospital, or
converted hospital as those terms are defined in paragraphs (26) to
(28), inclusive, respectively, of subdivision (a) of Section
14105.98.
   (s) "Subject federal fiscal year" means a federal fiscal year that
ends after the implementation date and begins before December 31,
2010.
   (t) "Subject hospital" shall mean a hospital that meets all of the
following conditions:
   (1) Is licensed pursuant to subdivision (a) of Section 1250 of the
Health and Safety Code.
   (2) Is in the Charitable Research Hospital peer group, as set
forth in the 1991 Hospital Peer Grouping Report published by the
department, or is not designated as a specialty hospital in the
hospital's Office of Statewide Health Planning and Development Annual
Financial Disclosure Report for the hospital's latest fiscal year
ending in 2007.
   (3) Does not satisfy the Medicare criteria to be classified as a
long-term care hospital.
   (u) "Subject month" means a calendar month beginning on or after
the implementation date and ending before January 1, 2011.
   (v) "Upper payment limit" means a federal upper payment limit on
the amount of the Medicaid payment for which federal financial
participation is available for a class of service and a class of
health care providers, as specified in Part 447 of Title 42 of the
Code of Federal Regulations.
  SEC. 2.  Section 14167.2 of the Welfare and Institutions Code is
amended to read:
   14167.2.  (a) Private hospitals shall be paid supplemental amounts
for the provision of hospital outpatient services as set forth in
this section. The supplemental amounts shall be in addition to any
other amounts payable to hospitals with respect to those services and
shall not affect any other payments to hospitals.
   (b) Except as set forth in subdivisions (e) and (f), each private
hospital shall be paid an amount for each subject federal fiscal year
equal to a percentage of the hospital's outpatient base amount. The
percentage shall be the same for each hospital for a subject federal
fiscal year and shall result in payments to hospitals that equal the
applicable federal upper payment limit.
   (c) In the event federal financial participation for a subject
federal fiscal year is not available for all of the supplemental
amounts payable to private hospitals under subdivision (b) due to the
application of a federal upper limit or for any other reason, both
of the following shall apply:
   (1) The total amount payable to private hospitals under
subdivision (b) for the subject federal fiscal year shall be reduced
to the amount for which federal financial participation is available.

   (2) The amount payable under subdivision (b) to each private
hospital for the subject federal fiscal year shall be equal to the
amount computed under subdivision (b) multiplied by the ratio of the
total amount for which federal financial participation is available
to the total amount computed under subdivision (b).
   (d) The supplemental amounts set forth in this section are
inclusive of federal financial participation.
   (e) No payments shall be made under this section to a new
hospital.
   (f) No payments shall be made under this section to a converted
hospital for the subject federal fiscal year in which the hospital
becomes a converted hospital or for subsequent subject federal fiscal
years.
  SEC. 3.  Section 14167.3 of the Welfare and Institutions Code is
amended to read:
   14167.3.  (a) Private hospitals shall be paid supplemental amounts
for the provision of hospital inpatient services and subacute
services as set forth in this section. The supplemental amounts shall
be in addition to any other amounts payable to hospitals with
respect to those services and shall not affect any other payments to
hospitals.
   (b) Except as set forth in subdivisions (g) and (h), each private
hospital shall be paid the following amounts as applicable for the
provision of hospital inpatient services for each subject federal
fiscal year:
   (1) Six hundred forty dollars and forty-six cents ($640.46)
multiplied by the hospital's general acute care days.
   (2) Four hundred eighty-five dollars ($485) multiplied by the
hospital's acute psychiatric days that were paid directly by the
department and were not the financial responsibility of a mental
health plan.
   (3) One thousand three hundred fifty dollars ($1,350) multiplied
by the number of the hospital's high acuity days if the hospital's
Medicaid inpatient utilization rate is less than 41.1 percent and
greater than 5 percent and at least 5 percent of the hospital's
general acute care days are high acuity days. This amount shall be in
addition to the amounts specified in paragraphs (1) and (2).
   (4) One thousand three hundred fifty dollars ($1,350) multiplied
by the number of the hospital's high acuity days if the hospital
qualifies to receive the amount set forth in paragraph (3) and has
been designated as a Level I, Level II, Adult/Ped Level I, or
Adult/Ped Level II trauma center by the emergency medical services
authority established pursuant to Section 1797.1 of the Health and
Safety Code. This amount shall be in addition to the amounts
specified in paragraphs (1), (2), and (3).
   (c) A private hospital that provides Medi-Cal subacute services
during a subject federal fiscal year and has a Medicaid inpatient
utilization rate that is greater than 5.0 percent and less than 41.1
percent shall be paid for the provision of subacute services during
each subject federal fiscal year a supplemental amount equal to 40
percent of the Medi-Cal subacute payments made to the hospital during
the 2008 calendar year.
   (d) (1) In the event federal financial participation for a subject
federal fiscal year is not available for all of the supplemental
amounts payable to private hospitals under subdivision (b) due to the
application of a federal limit or for any other reason, both of the
following shall apply:
   (A) The total amount payable to private hospitals under
subdivision (b) for the subject federal fiscal year shall be reduced
to reflect the amount for which federal financial participation is
available.
   (B) The amount payable under subdivision (b) to each private
hospital for the subject federal fiscal year shall be equal to the
amount computed under subdivision (b) multiplied by the ratio of the
total amount for which federal financial participation is available
to the total amount computed under subdivision (b).
   (2) In the event federal financial participation for a subject
federal fiscal year is not available for all of the supplemental
amounts payable to private hospitals under subdivision (c) due to the
application of a federal upper limit or for any other reason, both
of the following shall apply:
   (A) The total amount payable to private hospitals under
subdivision (c) for the subject federal fiscal year shall be reduced
to reflect the amount for which federal financial participation is
available.
   (B) The amount payable under subdivision (c) to each private
hospital for the subject federal fiscal year shall be equal to the
amount computed under subdivision (c) multiplied by the ratio of the
total amount for which federal financial participation is available
to the total amount computed under subdivision (c).
   (e) In the event the amount otherwise payable to a hospital under
this section for a subject federal fiscal year exceeds the amount for
which federal financial participation is available for that
hospital, the amount due to the hospital for that federal fiscal year
shall be reduced to the amount for which federal financial
participation is available.
   (f) The amounts set forth in this section are inclusive of federal
financial participation.
   (g) No payments shall be made under this section to a new
hospital.
   (h) No payments shall be made under this section to a converted
hospital for the subject federal fiscal year in which the hospital
becomes a converted hospital or for subsequent subject federal fiscal
years.
  SEC. 4.  Section 14167.5 of the Welfare and Institutions Code is
amended to read:
   14167.5.  (a) Designated public hospitals shall be paid direct
grants in support of health care expenditures, which shall not
constitute Medi-Cal payments, and which shall be funded by the
quality assurance fee set forth in Article 5.22 (commencing with
Section 14167.31). The aggregate amount of the grants to designated
public hospitals for each subject federal fiscal year shall be two
hundred ninety-five million dollars ($295,000,000).
   (b) The director shall allocate the amount specified in
subdivision (a) among the designated public hospitals in accordance
with this subdivision. In determining the allocation, the director
shall rely on data from the Interim Hospital Payment Rate Workbooks.
For purposes of this section, "Interim Hospital Payment Rate Workbook"
means the Interim Hospital Payment Rate Workbook, developed by the
department and approved by the federal Centers for Medicare and
Medicaid Services for use in connection with the Medi-Cal
Hospital/Uninsured Care 1115 Waiver Demonstration, as submitted by
each designated public hospital, or the governmental entity with
which the hospital is affiliated, on or around June 2009 for the
period of July 1, 2007, to June 30, 2008, inclusive.
   (1) Each designated public hospital's share of 80 percent of the
amount specified in subdivision (a) shall be determined by applying a
fraction, the numerator of which is the certified public
expenditures reported by the designated public hospital as allowable
Medi-Cal inpatient expenditures on Schedule 2.1, Column 5, Step 5 of
the Interim Hospital Payment Rate Workbook, and the denominator of
which is the total amount of certified public expenditures reported
as allowable Medi-Cal inpatient expenditures by all designated public
hospitals on Schedule 2.1, Column 5, Step 5 of the Interim Hospital
Payment Rate Workbooks.
   (2) Each designated public hospital's share of 20 percent of the
amount described in subdivision (a) shall be determined by applying a
fraction, the numerator of which is the sum of the uninsured days of
inpatient hospital services reported by the designated public
hospital on Schedule 1, Column 5a, lines 25 through 33 of the Interim
Hospital Payment Rate Workbook, and the denominator of which is the
total uninsured days of inpatient hospital services reported by all
designated public hospitals on Schedule 1, Column 5a, lines 25
through 33 of the Interim Hospital Payment Rate Workbooks.
   (c) In the event federal financial participation for a subject
federal fiscal year is not available for all of the supplemental
amounts payable to private hospitals under Section 14167.3, due to
the limitations on supplemental payments based on a partial-year
federal upper payment limit, the amount payable to each designated
public hospital under subdivision (b) shall equal the designated
public hospital's allocated grant amount under subdivision (b)
multiplied by a fraction, the numerator of which is the total number
of months in the subject federal fiscal year for which federal
financial participation is available for supplemental payment amounts
to private hospitals up to the federal upper payment limit, and the
denominator of which is 12.
   (d) Designated public hospitals shall be paid supplemental
Medi-Cal amounts for acute inpatient psychiatric services that are
paid directly by the department and are not the financial
responsibility of a mental health plan, as set forth in this
subdivision. The supplemental amounts shall be in addition to any
other amounts payable to designated public hospitals, or a
governmental entity with which the hospital is affiliated, with
respect to those services and shall not affect any other payments to
hospitals or to any governmental entity with which the hospital is
affiliated.
   (1) Each designated public hospital shall be paid an amount for
each subject federal fiscal year equal to four hundred eighty-five
dollars ($485) multiplied by the hospital's acute psychiatric days
that were paid directly by the department and were not the financial
responsibility of a mental health plan, inclusive of federal
financial participation.
   (2) In the event federal financial participation for a subject
federal fiscal year is not available for all of the supplemental
amounts payable to designated public hospitals under paragraph (1)
due to the application of a federal upper payment limit or for any
other reason, both of the following shall apply:
   (A) The total amount payable to designated public hospitals under
paragraph (1) for the subject federal fiscal year shall be reduced to
the amount for which federal financial participation is available.
   (B) The amount payable under paragraph (1) to each designated
public hospital for the subject federal fiscal year shall be equal to
the amount computed under paragraph (1) multiplied by the ratio of
the total amount for which federal financial participation is
available to the total amount computed under paragraph (1).
   (3) In the event the amount otherwise payable to a designated
public hospital under this subdivision for a subject federal fiscal
year exceeds the amount for which federal financial participation is
available for that hospital, the amount due to the hospital for that
federal fiscal year shall be reduced to the amount for which federal
financial participation is available.
  SEC. 5.  Section 14167.6 of the Welfare and Institutions Code is
amended to read:
   14167.6.  (a) The department shall increase capitation payments to
Medi-Cal managed health care plans for the subject federal fiscal
years as set forth in this section.
   (b) The increased capitation payments shall be made as part of the
monthly capitated payments made by the department to managed health
care plans.
   (c) The aggregate amount of increased capitation payments to all
Medi-Cal managed health care plans for a subject federal fiscal year
shall be seven hundred twenty-nine million eight hundred twenty-nine
thousand two hundred two dollars ($729,829,202) multiplied by the fee
percentage of the subject federal fiscal year.
   (d) The department shall determine the amount of the increased
capitation payments for each managed health care plan. The department
shall consider the composition of Medi-Cal enrollees in the plan,
the anticipated utilization of hospital services by the plan's
Medi-Cal enrollees, and other factors that the department determines
are reasonable and appropriate to ensuring access to high quality
hospital services by the plan's enrollees.
   (e) The amount of increased capitation payments to each Medi-Cal
managed care health plan shall not exceed an amount that results in
capitation payments that are certified by the state's actuary as
meeting federal requirements, taking into account the requirement
that all of the increased capitation payments under this section
shall be paid by the Medi-Cal managed health care plans to hospitals
for hospital services to Medi-Cal enrollees of the plan.
   (f) The increased capitation payments to managed health care plans
under this section shall be made to support the availability of
hospital services and ensure access to hospital services for Medi-Cal
beneficiaries. The increased capitation payments to managed health
care plans shall be made as follows:
   (1) The increased capitation payments shall commence during the
second month following the month during which the quality assurance
fee set forth in Article 5.22 (commencing with Section 14167.31) is
due and payable from hospitals if the quality assurance fee includes
funds for increased capitation payments to managed health care plans.
The last increased capitation payments made pursuant to this section
shall be made during December 2010.
   (2) The increased capitation payments made during the first month
in which increased payments are made pursuant to this section shall
include the sum of the increased payments for all prior months for
which payments are due and actuarial certification was received.
   (g) Payments to managed health care plans that would be paid
consistent with actuarial certification and enrollment in the absence
of the payments made pursuant to this section shall not be reduced
as a consequence of payment under this section.
   (h) (1) Each managed health care plan shall expend 100 percent of
any increased capitation payments it receives under this section,
                                              on hospital services.
   (2) The department may issue change orders to amend contracts with
managed health care plans as needed to adjust monthly capitation
payments in order to implement this section.
   (i) In the event federal financial participation is not available
for all of the increased capitation payments determined for a month
pursuant to this section for any reason, the increased capitation
payments mandated by this section for that month shall be reduced
proportionately to the amount for which federal financial
participation is available.
   (j) Notwithstanding Chapter 3.5 (commencing with Section 11340) of
Part 1 of Division 3 of Title 2 of the Government Code, the
department shall implement this section by means of policy letters or
similar instructions, without taking further regulatory action.
  SEC. 6.  Section 14167.9 of the Welfare and Institutions Code is
repealed.
  SEC. 7.  Section 14167.9 is added to the Welfare and Institutions
Code, to read:
   14167.9.  Subject to the limitations in Section 14167.14, the
following shall apply:
   (a) (1) The department shall make to hospitals the payments
described in Sections 14167.2, 14167.3, 14167.4, and subdivision (d)
of Section 14167.5 for the 2008-09, 2009-10, and 2010-11 federal
fiscal years in seven payments.
   (2) (A) The first payment shall be made on or before the later of
September 30, 2010, or the  30   30th  day
after the notice described in Section 14167.32 is sent to each
hospital.
   (B) The subsequent payments shall be made in six consecutive
semimonthly payments that shall be made on or before the later of
each of the  14 and 30   14th and 30th 
days of October, November, and December 2010, or the  30
  30th  day after the notice described in Section
14167.32 is sent to each hospital.
   (3) The amount of each payment made pursuant to this subdivision
shall be one-seventh of the amount of payments calculated for each
hospital under Sections 14167.2, 14167.3, 14167.4, and subdivision
(d) of Section 14167.5.
   (b) Notwithstanding subdivision (a), all amounts due to hospitals
under Sections 14167.2, 14167.3, 14167.4, and subdivision (d) of
Section 14167.5 that have not been paid to hospitals before December
30, 2010, pursuant to subdivision (a), shall be paid to hospitals no
later than December 30, 2010.
   (c) (1) The department shall make to hospitals the payments
described in subdivisions (a), (b), and (c) of Section 14167.5 in
seven payments.
   (2) (A) (i) The first six payments shall be made in consecutive
semimonthly payments that shall be made on or before the later of
each of the first and 15th days of October, November, and December
2010, or the 30th day after the notice described in Section 14167.32
is sent to each hospital.
   (ii) The amount of each of the first six payments shall be
one-seventh of the amount of payments calculated for each hospital
under subdivisions (a), (b), and (c) of Section 14167.5.
   (B) (i) The seventh payment shall be made on or before December
30, 2010.
   (ii) The amount of the seventh payment shall be the total amount
due to hospitals under subdivisions (a), (b), and (c) of Section
14167.5 minus the amounts previously paid to the hospitals under
subparagraph (A).
  SEC. 8.  Section 14167.10 of the Welfare and Institutions Code is
amended to read:
   14167.10.  (a) Each managed health care plan receiving increased
capitation payments under Section 14167.6 shall expend the capitation
rate increases in a manner consistent with actuarial certification,
enrollment, and utilization on hospital services within 30 days of
receiving the increased capitation payments.
   (b) For each subject federal fiscal year, the sum of all
expenditures made by a managed health care plan for hospital services
pursuant to this section shall equal, or approximately equal, all
increased capitation payments received by the managed health care
plan, consistent with actuarial certification, enrollment, and
utilization, from the department pursuant to Section 14167.6.
   (c) Any delegation or attempted delegation by a managed health
care plan of its obligation to expend the capitation rate increases
under this section shall not relieve the plan from its obligation to
expend those capitation rate increases. Managed health care plans
shall submit the documentation the department may require to
demonstrate compliance with this subdivision. The documentation shall
demonstrate actual expenditure of the capitation rate increases for
hospital services, and not assignment to subcontractors of the
managed health care plan's obligation of the duty to expend the
capitation rate increases.
   (d) Consistent with actuarial certification, enrollment, and
utilization, managed health care plans shall in no event be obligated
under this section to expend the capitation rate increases on
hospital services that exceed the increased capitation payments made
to the managed health care plans under Section 14167.6.
  SEC. 9.  Section 14167.11 of the Welfare and Institutions Code is
amended to read:
   14167.11.  (a) The department shall increase payments to mental
health plans for the subject federal fiscal years as set forth in
this section.
   (b) For each fiscal quarter that begins on or after the
implementation date, the state shall make increased capitation
payments to each mental health plan. The amount of those increased
capitation payments to a mental health plan shall be the sum of all
individual hospital acute psychiatric supplemental payments for
subject hospitals located in each county in which the mental health
plan operates.
   (c) The state shall make increased capitation payments to mental
health plans exclusively for the purpose of making supplemental
payments to hospitals, in order to support the availability of
hospital mental health services and ensure access for Medi-Cal
beneficiaries to hospital mental health services. The increased
capitation payments to mental health plans shall be made as follows:
   (1) The increased capitation payments shall commence on or before
the later of the last day of the second month of the quarter in which
federal approval is granted or the 45th day following the day on
which federal approval is granted. Subsequent increased capitation
payments shall be made on the last day of the second month of each
quarter. The last increased capitation payments made pursuant to this
section shall be made during November 2010.
   (2) The increased capitation payments made for the first quarter
for which increased capitation payments are made under this section
shall include the sum of increased capitation payments for all prior
quarters for which payments are due under subdivision (b).
   (3) The increased capitation payments made during November 2010
shall include payments computed under subdivision (b) for all
quarters in the 2010-11 federal fiscal year to the extent that
federal financial participation is available for the payments.
   (d) (1) Each mental health plan shall expend, in the form of
additional payments to hospitals, 100 percent of any increased
capitation payments it receives under this section, pursuant to
Section 14167.12.
   (2) At the discretion of the director, the plans shall receive an
administrative fee, in an amount determined by the department, that
is in addition to the increased capitation payments, that is
reflective of actual administrative costs and that shall be paid from
the fund created in Article 5.22 (commencing with Section 14167.31).

   (e) In the event federal financial participation for a subject
federal fiscal year is not available for all of the increased
capitation acute psychiatric payments determined for a quarter
pursuant to this section for any reason, the increased capitation
payments mandated by this section for that quarter shall be reduced
proportionately to the amount for which federal financial
participation is available.
   (f) Payments to mental health plans that would be paid in the
absence of the payments made pursuant to this section shall not be
reduced as a consequence of the payments under this section.
   (g) In the event the director determines that payment of the
individual acute psychiatric supplemental payments may be made by the
department directly to the hospitals under this section and Section
14167.12 without the need for transmitting the funds through the
mental health plans, those direct payments shall be made
notwithstanding any other provision of this article or Article 5.22
(commencing with Section 14167.31).
   (h) The department may, as necessary, allocate money appropriated
to it from the Hospital Quality Assurance Revenue Fund to the State
Department of Mental Health for the purposes of making increased
payments to mental health plans pursuant to this article.
  SEC. 10.  Section 14167.12 of the Welfare and Institutions Code is
amended to read:
   14167.12.  (a) At the same time that the state makes an increased
capitation payment to a mental health plan under Section 14167.11,
the state shall notify the mental health plan that the plan shall
make payments in the amount of the individual hospital acute
psychiatric supplemental payment to each subject hospital located in
each county in which the mental health plan operates as a consequence
of receiving the increased capitation payment and the amount of the
individual hospital acute psychiatric supplemental payment due to
each hospital, subject to the following:
   (1) In the case of the increased capitation payments made to a
mental health plan during the first quarter in which the payments are
made to the plan, the notice shall direct mental health plans to
make supplemental payments to each hospital in an amount equal to
each hospital's individual hospital acute psychiatric supplemental
payment multiplied by the number of quarters for which the enhance
payments were made.
   (2) The notice provided by the department in connection with the
increased capitation payments to each mental health plan during
November 2010 shall also direct the mental health plan to make
quarterly supplemental payments to hospitals for quarters, if any,
between January 2011 and September 2011, inclusive, for which federal
financial participation is available as described in paragraph (3)
of subdivision (c) of Section 14167.11 and the amount of the
supplemental payments as calculated pursuant to this subdivision.
   (b) Each mental health plan receiving payments under Section
14167.11 shall make supplemental payments to hospitals within 30 days
of receiving the payments under Section 14167.11, except that if the
mental health plan receives increased capitation payments during
November 2010, which include payments relating to some or all of the
quarters between January 2011 and September 2011, inclusive, the
mental health plan shall make payments relating to the quarters
between January 2011 and September 2011, inclusive, on or before the
end of each quarter to which the payment relates. The payments shall
be made to those hospitals and in those amounts set forth by the
department in its notice provided pursuant to subdivision (a).
   (c) The supplemental payments made to hospitals pursuant to this
section shall be in addition to any other amounts payable to
hospitals by a mental health plan or otherwise and shall not affect
any other payments to hospitals.
   (d) For each subject federal fiscal year, the sum of all
supplemental payments made by a mental health plan to subject
hospitals pursuant to this section shall equal all increased
capitation payments received by the mental health plan from the state
pursuant to Section 14167.11.
   (e) Mental health plans shall not take into account payments made
pursuant to this article in negotiating the amount of payments to
hospitals that are not made pursuant to this article.
   (f) A mental health plan is obligated to make payments under this
section only to the extent of the payments it receives under Section
14167.11. A mental health plan may retain any interest it earns on
funds it receives under Section 14167.11 prior to making payments of
the funds to hospitals under this section.
   (g) No payments shall be made under this section to a new
hospital.
   (h) In the event federal financial participation for a quarter is
not available for all of the increased capitation mental health
payments made pursuant to Section 14167.11 for any reason, the
supplemental payments to hospitals under this section shall be
reduced proportionately to the amount for which federal financial
participation is available and the department's notice under
subdivision (a) shall reflect the reduction.
  SEC. 11.  Section 14167.14 of the Welfare and Institutions Code is
amended to read:
   14167.14.  (a) The director shall do all of the following:
   (1) Submit any state plan amendment or waiver request that may be
necessary to implement this article.
   (2) Seek federal approval for the use of the entire federal upper
payment limits applicable to hospital services for payments under
this article for the 2008-09, 2009-10, and 2010-11 federal fiscal
years.
   (3) Seek federal approvals or waivers as may be necessary to
implement this article and to obtain federal financial participation
to the maximum extent possible for the payments under this article.
   (4) Amend the contracts between the managed health care plans and
the department as necessary to incorporate the provisions of Sections
14167.6 and 14167.10 and promptly seek all necessary federal
approvals of those amendments. The department shall pursue amendments
to the contracts as soon as possible after the effective date of
this article and Article 5.22 (commencing with Section 14167.31), and
shall not wait for federal approval of this article or Article 5.22
(commencing with Section 14167.31) prior to pursuing amendments to
the contracts. The amendments to the contracts shall, among other
provisions, set forth an agreement to increase payment rates to
managed health care plans under Section 14166.6 and increase payments
to hospitals under Section 14166.10 effective April 2009 or as soon
thereafter as possible, conditioned on obtaining all federal
approvals necessary for federal financial participation for the
increased capitation payments to the managed health care plans.
   (b) In implementing this article, the department may utilize the
services of the Medi-Cal fiscal intermediary through a change order
to the fiscal intermediary contract to administer this program,
consistent with the requirements of Sections 14104.6, 14104.7,
14104.8, and 14104.9. Contracts entered into for purposes of
implementing this article or Article 5.22 (commencing with Section
14167.31) shall not be subject to Part 2 (commencing with Section
10100) of Division 2 of the Public Contract Code.
   (c) This article shall become inoperative if either of the
following occurs:
   (1) In the event, and on the effective date, of a final judicial
determination made by any court of appellate jurisdiction or a final
determination by the federal Department of Health and Human Services
or the federal Centers for Medicare and Medicaid Services that any
element of this article cannot be implemented.
   (2) In the event both of the following conditions exist:
   (A) The federal Centers for Medicare and Medicaid Services denies
approval for, or does not approve before January 1, 2012, the
implementation of Article 5.22 (commencing with Section 14167.31) or
this article.
   (B) Either or both articles cannot be modified by the department
pursuant to subdivision (e) of Section 14167.35 in order to meet the
requirements of federal law or to obtain federal approval.
   (d) If this article becomes inoperative pursuant to paragraph (1)
of subdivision (c) and the determination applies to any period or
periods of time prior to the effective date of the determination, the
department shall have authority to recoup all payments made pursuant
to this article during that period or those periods of time.
   (e) In the event any hospital, or any party on behalf of a
hospital, shall initiate a case or proceeding in any state or federal
court in which the hospital seeks any relief of any sort whatsoever,
including, but not limited to, monetary relief, injunctive relief,
declaratory relief, or a writ, based in whole or in part on a
contention that any or all of this article is unlawful and may not be
lawfully implemented, both of the following shall apply:
   (1) No payments shall be made to the hospital pursuant to this
article until the case or proceeding is finally resolved, including
the final disposition of all appeals.
   (2) Any amount computed to be payable to the hospital pursuant to
this section for a project year shall be withheld by the department
and shall be paid to the hospital only after the case or proceeding
is finally resolved, including the final disposition of all appeals.
   (f) No payment shall be made under this article until all
necessary federal approvals for the payment and for the fee
provisions in Article 5.22 (commencing with Section 14167.31) have
been obtained and the fee has been imposed and collected. Payments
under this article shall be made only to the extent that the fee
established in Article 5.22 (commencing with Section 14167.31) is
collected and available to support the payments.
   (g) Supplemental payments for the 2008-09 federal fiscal year
shall not reduce the maximum federal funds available annually
pursuant to the Special Terms and Conditions, as amended October 5,
2007, of the Current Section 1115 Waiver.
   (h) (1) The director shall negotiate the federal approvals
required to implement this article and Article 5.22 (commencing with
Section 14167.31) for the 2009-10 and 2010-11 federal fiscal years
concurrently with the negotiation of a federal waiver that will
replace the Current Section 1115 Waiver, with a goal of obtaining
federal approvals that do not adversely impact the federal funds that
would otherwise be available for services to Medi-Cal beneficiaries
and the uninsured. The director may initiate the concurrent
negotiations required by this subdivision by submitting a concept
paper to the federal Centers for Medicare and Medicaid Services
outlining the key elements of the replacement waiver consistent with
the goals set forth in this subdivision.
   (2) In negotiating the terms of a federal waiver that will replace
the Current 1115 Waiver, the department shall explore opportunities
for reform of the Medi-Cal program and strengthen California's health
care safety net. Subject to subsequent legislative approval, the
department shall explore program reforms, that may include, but need
not be limited to, strategies to accomplish payment system reforms
for hospital inpatient and outpatient care, including incentive based
payments, new payment methodologies such as diagnostic-related
group-based (DRG-based), or similar methodologies, patient safety
protocols, and quality measurement.
   (3) This article and Article 5.22 (commencing with Section
14167.31) shall not be implemented with respect to the 2009-10 and
2010-11 federal fiscal years until the earlier of April 30, 2010, or
the date the federal government approves a federal waiver for a
demonstration that will replace the Current Section 1115 Waiver.
   (i) A hospital's receipt of payments under this article for
services rendered prior to the effective date of this article is
conditioned on the hospital's continued participation in Medi-Cal for
at least 30 days after the effective date of this article.
   (j) All payments made by the department to hospitals, managed
health care plans, and mental health plans under this article shall
be made only from the following:
   (1) The quality assurance fee set forth in Article 5.22
(commencing with Section 14167.31) and due and payable on or before
December 31, 2010.
   (2) Federal reimbursement and any other related federal funds.
  SEC. 12.  Section 14167.15 of the Welfare and Institutions Code is
amended to read:
   14167.15.  Notwithstanding any other provision of this article or
Article 5.22 (commencing with Section 14167.31), the director may
proportionately reduce the amount of any supplemental payments,
increased capitation payments, or grants under this article to the
extent that the payment or grant would result in the reduction of
other amounts payable to a hospital or managed health care plan or
mental health plan due to the application of federal law.
  SEC. 13.  Section 14167.31 of the Welfare and Institutions Code is
amended to read:
   14167.31.  (a) (1) "Aggregate annual quality assurance fee" means,
with respect to a hospital that is not a prepaid health plan
hospital, the sum of all of the following:
   (A) The annual fee-for-service days for an individual hospital
multiplied by the fee-for-service per diem quality assurance fee
rate.
   (B) The annual managed care days for an individual hospital
multiplied by the managed care per diem quality assurance fee rate.
   (C) The annual Medi-Cal days for an individual hospital multiplied
by the Medi-Cal per diem quality assurance fee rate.
   (2) "Aggregate quality assurance fee" means, with respect to a
hospital that is a prepaid health plan hospital, the sum of all of
the following:
   (A) The annual fee-for-service days for an individual hospital
multiplied by the fee-for-service per diem quality assurance fee
rate.
   (B) The annual managed care days for an individual hospital
multiplied by the prepaid health plan hospital managed care per diem
quality assurance fee rate.
   (C) The annual Medi-Cal managed care days for an individual
hospital multiplied by the prepaid health plan hospital Medi-Cal
managed care per diem quality assurance fee rate.
   (D) The annual Medi-Cal fee-for-service days for an individual
hospital multiplied by the Medi-Cal per diem quality assurance fee
rate.
   (3) "Aggregate quality assurance fee after the application of the
fee percentage" shall be determined separately for each subject
federal fiscal year and means the aggregate annual quality assurance
fee multiplied by the fee percentage for the subject federal fiscal
year.
   (4) "Aggregate quality assurance fee" means the sum of the
aggregate quality assurance fee after the application of the fee
percentage for a hospital for each subject federal fiscal year.
   (b) "Annual fee-for-service days" means the number of
fee-for-service days of each hospital subject to the quality
assurance fee in the 2007 calendar year, as reported on the days data
source.
   (c) "Annual managed care days" means the number of managed care
days of each hospital subject to the quality assurance fee in the
2007 calendar year, as reported on the days data source.
   (d) "Annual Medi-Cal days" means the number of Medi-Cal days of
each hospital subject to the quality assurance fee in the 2007
calendar year, as reported on the days data source.
   (e) "Converted hospital" shall have the meaning given in
subdivision (b) of Section 14167.1.
   (f) "Days data source" means the following:
   (1) For a hospital that did not submit an Annual Financial
Disclosure Report to the Office of Statewide Health Planning and
Development for a fiscal year ending during 2007, but submitted that
report for a fiscal period ending in 2008 that includes at least 10
months of 2007, the Annual Financial Disclosure Report submitted by
the hospital to the Office of Statewide Health Planning and
Development for the fiscal period in 2008 that includes at least 10
months of 2007.
   (2) For a hospital owned by Kaiser Foundation Hospitals that
submitted corrections to reported patient days to the Office of
Statewide Health Planning and Development for its fiscal year ending
in 2007 before July 31, 2009, the corrected data.
   (3) For all other hospitals, the hospital's Annual Financial
Disclosure Report in the Office of Statewide Health Planning and
Development files as of October 31, 2008, for its fiscal year ending
during 2007.
   (g) "Designated public hospital" shall have the meaning given in
subdivision (d) of Section 14166.1 as that section may be amended
from time to time.
   (h) "Exempt facility" means any of the following:
   (1) A public hospital as defined in paragraph (25) of subdivision
(a) of Section 14105.98.
   (2) With the exception of a hospital that is in the Charitable
Research Hospital peer group, as set forth in the 1991 Hospital Peer
Grouping Report published by the department, a hospital that is a
hospital designated as a specialty hospital in the hospital's Office
of Statewide Health Planning and Development Hospital Annual
Disclosure Report for the hospital's fiscal year ending in the 2007
calendar year.
   (3) A hospital that satisfies the Medicare criteria to be a
long-term care hospital.
   (4) A small and rural hospital as specified in Section 124840 of
the Health and Safety Code designated as that in the hospital's
Office of Statewide Health Planning and Development Hospital Annual
Disclosure Report for the hospital's fiscal year ending in the 2007
calendar year.
   (i) (1) "Federal approval" means the last approval by the federal
government required for the implementation of this article and
Article 5.21 (commencing with Section 14167.1).
   (2) If federal approval is sought initially for only the 2008-09
federal fiscal year and separately secured for subsequent federal
fiscal years, the implementation date, as defined in subdivision (i)
of Section 14167.1, for the 2008-09 federal fiscal year shall occur
when all necessary federal approvals have been secured for that
federal fiscal year.
   (j) "Fee-for-service per diem quality assurance fee rate" means a
fixed fee on fee-for-service days of two hundred fifteen dollars and
thirty cents ($215.30) per day.
   (k) "Fee-for-service days" means inpatient hospital days where the
service type is reported as "acute care," "psychiatric care," and
"chemical dependency care and rehabilitation care," and the payer
category is reported as "Medicare traditional," "county indigent
programs-traditional," "other third parties-traditional," "other
indigent," and "other payers," for purposes of the Annual Financial
Disclosure Report submitted by hospitals to the Office of Statewide
Health Planning and Development.
   (l) "Fee percentage" means, for each subject federal fiscal year,
a fraction, expressed as a percentage, the numerator of which is the
amount of payments for the subject federal fiscal year under Sections
14167.2, 14167.3, and 14167.4, subdivision (d) of Section 14167.5,
and Section 14167.6 for which federal financial participation is
available and the denominator of which is two billion nine hundred
eighty-two million one hundred twenty-one thousand five hundred sixty
dollars ($2,982,121,560).
                                                                (m)
"General acute care hospital" means any hospital licensed pursuant to
subdivision (a) of Section 1250 of the Health and Safety Code.
   (n) "Hospital community" means any hospital industry organization
or system that represents children's hospitals, nondesignated public
hospitals, designated public hospitals, private safety-net hospitals,
and other public or private hospitals.
   (o) "Managed care days" means inpatient hospital days in the 2007
calendar year as reported on the days data source where the service
type is reported as "acute care," "psychiatric care," and "chemical
dependency care and rehabilitation care," and the payer category is
reported as "Medicare managed care," "county indigent
programs-managed care," and "other third parties-managed care," for
purposes of the Annual Financial Disclosure Report submitted by
hospitals to the Office of Statewide Health Planning and Development.

   (p) "Managed care per diem quality assurance fee rate" means a
fixed fee on managed care days of twenty-two dollars and fifty cents
($22.50) per day.
   (q) "Medi-Cal days" means inpatient hospital days in the 2007
calendar year as reported on the days data source where the service
type is reported as "acute care," "psychiatric care," and "chemical
dependency care and rehabilitation care," and the payer category is
reported as "Medi-Cal-traditional" and "Medi-Cal-managed care," for
purposes of the Annual Financial Disclosure Report submitted by
hospitals to the Office of Statewide Health Planning and Development.

   (r) "Medi-Cal fee-for-service days" means inpatient hospital days
in the 2007 calendar year as reported on the days data source where
the service type is reported as "acute care," "psychiatric care," and
"chemical dependency care and rehabilitation care," and the payer
category is reported as "Medi-Cal traditional" for purposes of the
Annual Financial Disclosure Report submitted by hospitals to the
Office of Statewide Health Planning and Development.
   (s) "Medi-Cal managed care days" means inpatient hospital days in
the 2007 calendar year as reported on the days data source where the
service type is reported as "acute care," "psychiatric care," and
"chemical dependency care and rehabilitation care," and the payer
category is reported as "Medi-Cal managed care" for purposes of the
Annual Financial Disclosure Report submitted by hospitals to the
Office of Statewide Health Planning and Development.
   (t) "Medi-Cal per diem quality assurance fee rate" means a fixed
fee on Medi-Cal days of two hundred thirty-two dollars ($232) per
day.
   (u) "Nondesignated public hospital" means a public hospital that
is licensed under subdivision (a) of Section 1250 of the Health and
Safety Code and is defined in paragraph (25) of subdivision (a) of
Section 14105.98, excluding designated public hospitals.
   (v) "Prepaid health plan hospital" means a hospital that is in the
Prepaid Health Plan Hospital peer group described in the 1991
Hospital Peer Grouping Report published by the department.
   (w) "Prepaid health plan hospital managed care per diem quality
assurance fee rate" means a fixed fee on non-Medi-Cal managed care
days for prepaid health plan hospitals of twelve dollars and sixty
cents ($12.60) per day.
   (x) "Prepaid health plan hospital Medi-Cal managed care per diem
quality assurance fee rate" means a fixed fee on Medi-Cal managed
care days for prepaid health plan hospitals of one hundred
twenty-nine dollars and ninety-two cents ($129.92) per day.
   (y) "Prior fiscal year data" means any data taken from sources
that the department determines are the most accurate and reliable at
the time the determination is made, or may be calculated from the
most recent audited data using appropriate update factors. The data
may be from prior fiscal years, current fiscal years, or projections
of future fiscal years.
   (z) "Private hospital" means a hospital licensed under subdivision
(a) of Section 1250 of the Health and Safety Code that is a
nonpublic hospital, nonpublic converted hospital, or converted
hospital as those terms are defined in paragraphs (26) to (28),
inclusive, respectively, of subdivision (a) of Section 14105.98.
   (aa) "Subject federal fiscal year" means a federal fiscal year
ending after the implementation date, as defined in Section 14167.1,
and beginning before December 31, 2010.
   (ab) "Upper payment limit" means a federal upper payment limit on
the amount of the Medicaid payment for which federal financial
participation is available for a class of service and a class of
health care providers, as specified in Part 447 of Title 42 of the
Code of Federal Regulations.
  SEC. 14.  Section 14167.32 of the Welfare and Institutions Code is
amended to read:
   14167.32.  (a) There shall be imposed on each general acute care
hospital that is not an exempt facility a quality assurance fee, as a
condition of participation in state-funded health insurance
programs, other than the Medi-Cal program, provided that a quality
assurance fee shall not be imposed on a converted hospital for a
subject federal fiscal year in which the hospital becomes a converted
hospital or for subsequent federal fiscal years.
   (b) The quality assurance fee shall be computed starting on the
implementation date, as defined in Section 14167.1, and continue
through and including December 31, 2010.
   (c) Upon receipt of federal approval, the following shall become
operative:
   (1) Within 30 days following receipt of the notice of federal
approval from the federal government, the department shall send
notice to each hospital subject to the quality assurance fee, and
publish on its Internet Web site, the following information:
   (A) The date that the state received notice of federal approval.
   (B) The fee percentage or percentages for each subject federal
fiscal year.
   (2) The notice to each hospital subject to the quality assurance
fee shall also state the following:
   (A) The aggregate quality assurance fee after the application of
the fee percentage for each subject federal fiscal year.
   (B) The aggregate quality assurance fee.
   (C) The amount of each installment payment due from the hospital
with respect to the aggregate quality assurance fee.
   (D) The date on which each installment payment is due.
   (3) (A) The hospitals shall pay the aggregate quality assurance
fee in seven equal installments.
   (B) (i) The first installment payment shall be made on or before
the later of September 14, 2010, or the 14th day after the notice
described in this section is sent to each hospital.
   (ii) The additional installment payments shall be made in six
consecutive semimonthly payments that shall be due and payable on or
before the later of each of the first and 15th days of October,
November, and December 2010, or the 14th day after the notice
described in this section is sent to each hospital.
   (4) Notwithstanding paragraph (3), the amount of each hospital's
aggregate quality assurance fee that has not been paid by the
hospital before December 15, 2010, pursuant to paragraph (3), shall
be paid by the hospital no later than December 15, 2010.
   (d) The quality assurance fee, as paid pursuant to this
subdivision, shall be paid by each hospital subject to the fee to the
department for deposit in the Hospital Quality Assurance Revenue
Fund. Deposits may be accepted at any time and will be credited
toward the fiscal year for which they were assessed.
   (e) This section shall become inoperative if the federal Centers
for Medicare and Medicaid Services denies approval for, or does not
approve before January 1, 2012, the implementation of this article or
Article 5.21 (commencing with Section 14167.1), and either or both
articles cannot be modified by the department pursuant to subdivision
(e) of Section 14167.35 in order to meet the requirements of federal
law or to obtain federal approval.
   (f) In no case shall the aggregate fees collected in a subject
federal fiscal year pursuant to this section exceed the maximum
percentage of the annual aggregate net patient revenue for hospitals
subject to the fee that is prescribed pursuant to federal law and
regulations as necessary to preclude a finding that an indirect
guarantee has been created.
   (g) (1) Interest shall be assessed on quality assurance fees not
paid on the date due at the greater of 10 percent per annum or the
rate at which the department assesses interest on Medi-Cal program
overpayments to hospitals that are not repaid when due. Interest
shall begin to accrue the day after the date the payment was due and
shall be deposited in the Hospital Quality Assurance Revenue Fund.
   (2) In the event that any fee payment is more than 60 days
overdue, a penalty equal to the interest charge described in
paragraph (1) shall be assessed and due for each month for which the
payment is not received after 60 days.
   (h) When a hospital fails to pay all or part of the quality
assurance fee within 10 days of the date that payment is due, the
department may deduct the unpaid assessment and interest owed from
any Medi-Cal payments or other state payments to the hospital in
accordance with Section 12419.5 of the Government Code until the full
amount is recovered. All amounts, except penalties, deducted by the
department under this subdivision shall be deposited in the Hospital
Quality Assurance Revenue Fund. The remedy provided to the department
by this section is in addition to other remedies available under
law.
   (i) The payment of the quality assurance fee shall not be
considered as an allowable cost for Medi-Cal cost reporting and
reimbursement purposes.
   (j) The department shall work in consultation with the hospital
community to implement the quality assurance fee.
   (k) This subdivision creates a contractually enforceable promise
on behalf of the state to use the proceeds of the quality assurance
fee, including any federal matching funds, solely and exclusively for
the purposes set forth in this article as they existed on the
effective date of this article, to limit the amount of the proceeds
of the quality assurance fee to be used to pay for the health care
coverage of children to the amounts specified in this article and to
make any payments for the department's costs of administration to the
amounts set forth in this article on the effective date of this
article to maintain and continue prior reimbursement levels as set
forth in Article 5.21 (commencing with Section 14167.1) on the
effective date of that article, and to otherwise comply with all its
obligations set forth in Article 5.21 (commencing with Section
14167.1) and this article.
   (l) For the purpose of this article, references to the receipt of
notice by the state of federal approval of the implementation of this
article shall refer to the last date that the state receives notice
of all federal approval or waivers required for implementation of
this article and Article 5.21 (commencing with Section 14167.1),
subject to Section 14167.14.
   (m) (1) Effective January 1, 2011, the rates payable to hospitals
and managed health care plans under Medi-Cal shall be the rates then
payable without the supplemental and increased capitation payments
set forth in Article 5.21 (commencing with Section 14167.1).
   (2) The supplemental payments and other payments under Article
5.21 (commencing with Section 14167.1) shall be regarded as quality
assurance payments, the implementation or suspension of which does
not affect a determination of the adequacy of any rates under federal
law.
  SEC. 15.  Section 14167.35 of the Welfare and Institutions Code is
amended to read:
   14167.35.  (a) The Hospital Quality Assurance Revenue Fund is
hereby created in the State Treasury.
   (b) (1) All fees required to be paid to the state pursuant to this
article shall be paid in the form of remittances payable to the
department.
   (2) The department shall directly transmit the fee payments and
any related federal reimbursement to the Treasurer to be deposited in
the Hospital Quality Assurance Revenue Fund. Notwithstanding Section
16305.7 of the Government Code, any interest and dividends earned on
deposits in the fund shall be retained in the fund for purposes
specified in subdivision (c).
   (c) All funds in the Hospital Quality Assurance Revenue Fund,
together with any interest and dividends earned on money in the fund,
shall, upon appropriation by the Legislature, be used exclusively to
enhance federal financial participation for hospital services under
the Medi-Cal program, to provide additional reimbursement to, and to
support quality improvement efforts of, hospitals, and to minimize
uncompensated care provided by hospitals to uninsured patients, in
the following order of priority:
   (1) To pay for the department's staffing and administrative costs
directly attributable to implementing Article 5.21 (commencing with
Section 14167.1) and this article, including any administrative fees
that the director determines shall be paid to mental health plans
pursuant to subdivision (d) of Section 14167.11 and repayment of the
loan made to the department from the Private Hospital Supplemental
Fund pursuant to the act that added this section.
   (2) To pay for the health care coverage for children in the amount
of eighty million dollars ($80,000,000) for each quarter for which
payments are made under Article 5.21 (commencing with Section
14167.1). In any quarter for which payments reflect room under the
upper payment limit that was available from prior or subsequent
quarters, the prior or subsequent quarters shall constitute quarters
for purposes of the payment for health care coverage for children
required by this paragraph.
   (3) To make increased payments to hospitals pursuant to Article
5.21 (commencing with Section 14167.1).
   (4) To make increased capitation payments to managed health care
plans pursuant to Article 5.21 (commencing with Section 14167.1).
   (5) To make increased payments to mental health plans pursuant to
Article 5.21 (commencing with Section 14167.1).
   (d) Any amounts of the quality assurance fee collected in excess
of the funds required to implement subdivision (c), including any
funds recovered under subdivision (d) of Section 14167.14 or
subdivision (e) of Section 14167.36, shall be refunded to general
acute care hospitals, pro rata with the amount of quality assurance
fee paid by the hospital, subject to the limitations of federal law.
If federal rules prohibit the refund described in this subdivision,
the excess funds shall be deposited in the Distressed Hospital Fund
to be used for the purposes described in Section 14166.23, and shall
be supplemental to and not supplant existing funds.
   (e) Any methodology or other provision specified in Article 5.21
(commencing with Section 14167.1) and this article may be modified by
the department, in consultation with the hospital community, to the
extent necessary to meet the requirements of federal law or
regulations to obtain federal approval or to enhance the probability
that federal approval can be obtained, provided the modifications do
not violate the spirit and intent of Article 5.21 (commencing with
Section 14167.1) or this article and are not inconsistent with the
conditions of implementation set forth in Section 14167.36.
   (f) The department, in consultation with the hospital community,
shall make adjustments, as necessary, to the amounts calculated
pursuant to Section 14167.32 in order to ensure compliance with the
federal requirements set forth in Section 433.68 of Title 42 of the
Code of Federal Regulations or elsewhere in federal law.
   (g) The department shall request approval from the federal Centers
for Medicare and Medicaid Services for the implementation of this
article. In making this request, the department shall seek specific
approval from the federal Centers for Medicare and Medicaid Services
to exempt providers identified in this article as exempt from the
fees specified, including the submission, as may be necessary, of a
request for waiver of the broad based requirement, waiver of the
uniform fee requirement, or both, pursuant to paragraphs (1) and (2)
of subdivision (e) of Section 433.68 of Title 42 of the Code of
Federal Regulations.
   (h) (1) For purposes of this section, a modification pursuant to
this section shall be implemented only if the modification, change,
or adjustment does not do either of the following:
   (A) Reduces or increases the supplemental payments or grants made
under Article 5.21 (commencing with Section 14167.1) in the aggregate
for the 2008-09, 2009-10, and 2010-11 federal fiscal years to a
hospital by more than 2 percent of the amount that would be
determined under this article without any change or adjustment.
   (B) Reduces or increases the amount of the fee payable by a
hospital in total under this article for the 2008-09, 2009-10, and
2010-11 federal fiscal years by more than 2 percent of the amount
that would be determined under this article without any change or
adjustment.
   (2) The department shall provide the Joint Legislative Budget
Committee and the fiscal and appropriate policy committees of the
Legislature a status update of the implementation of Article 5.21
(commencing with Section 14167.1) and this article on January 1,
2010, and quarterly thereafter. Information on any adjustments or
modifications to the provisions of this article or Article 5.21
(commencing with Section 14167.1) that may be required for federal
approval shall be provided coincident with the consultation required
under subdivisions (f) and (g).
   (i) Notwithstanding Chapter 3.5 (commencing with Section 11340) of
Part 1 of Division 3 of Title 2 of the Government Code, the
department may implement this article or Article 5.21 (commencing
with Section 14167.1) by means of provider bulletins, all plan
letters, or other similar instruction, without taking regulatory
action. The department shall also provide notification to the Joint
Legislative Budget Committee and to the appropriate policy and fiscal
committees of the Legislature within five working days when the
above-described action is taken in order to inform the Legislature
that the action is being implemented.
  SEC. 16.  Section 14167.36 of the Welfare and Institutions Code is
amended to read:
   14167.36.  (a) This article shall only be implemented so long as
the following conditions are met:
   (1) Subject to Section 14167.35, the quality assurance fee is
established in a manner that is fundamentally consistent with this
article.
   (2) The quality assurance fee, including any interest on the fee
after collection by the department, is deposited in a segregated fund
apart from the General Fund.
   (3) The proceeds of the quality assurance fee, including any
interest and related federal reimbursement, may only be used for the
purposes set forth in this article.
   (b) No hospital shall be required to pay the quality assurance fee
to the department unless and until the state receives and maintains
federal approval of the quality assurance fee and Article 5.21
(commencing with Section 14167.1) from the federal Centers for
Medicare and Medicaid Services.
   (c) Hospitals shall be required to pay the quality assurance fee
to the department as set forth in this article only as long as all of
the following conditions are met:
   (1) The federal Centers for Medicare and Medicaid Services allows
the use of the quality assurance fee as set forth in this article.
   (2) Article 5.21 (commencing with Section 14167.1) is enacted and
remains in effect and hospitals are reimbursed the increased rates
beginning on the implementation date, as defined in Section 14167.1.
   (3) The full amount of the quality assurance fee assessed and
collected pursuant to this article remains available only for the
purposes specified in this article.
   (d) This article shall become inoperative if either of the
following occurs:
   (1) In the event, and on the effective date, of a final judicial
determination made by any court of appellate jurisdiction or a final
determination by the federal Department of Health and Human Services
or the federal Centers for Medicare and Medicaid Services that any
element of this article cannot be implemented.
   (2) In the event both of the following conditions exist:
   (A) The federal Centers for Medicare and Medicaid Services denies
approval for, or does not approve before January 1, 2012, the
implementation of Article 5.21 (commencing with Section 14167.1) or
this article.
   (B) Either or both articles cannot be modified by the department
pursuant to subdivision (e) of Section 14167.35 in order to meet the
requirements of federal law or to obtain federal approval.
   (e) If this article becomes inoperative pursuant to paragraph (1)
of subdivision (d) and the determination applies to any period or
periods of time prior to the effective date of the determination, the
department may recoup all payments made pursuant to Article 5.21
(commencing with Section 14167.1) during that period or those periods
of time.
   (f) This article and Article 5.21 (commencing with Section
14167.1) shall not be implemented with respect to the 2009-10 and
2010-11 federal fiscal years until the earlier of April 30, 2010, or
the date the federal government approves a federal waiver for a
demonstration that will replace the Current Section 1115 Waiver, as
defined in subdivision (c) of Section 14167.1. 
  SEC. 17.    Article 5.227 (commencing with Section
14168) is added to Chapter 7 of Part 3 of Division 9 of the Welfare
and Institutions Code, to read:

      Article 5.227.  Quality Assurance Fee Act


   14168.  (a) (1) "Exempt facility" means any of the following:
   (A) A public hospital, which shall include either of the
following:
   (i) A hospital as defined in paragraph (25) of subdivision (a) of
Section 14105.98.
   (ii) A tax-exempt nonprofit hospital that is licensed under
subdivision (a) of Section 1250 of the Health and Safety Code and
operating a hospital owned by a local health care district, and is
affiliated with the health care district hospital owner by means of
the district's status as the nonprofit corporation's sole corporate
member.
   (B) With the exception of a hospital that is in the Charitable
Research Hospital peer group, as set forth in the 1991 Hospital Peer
Grouping Report published by the department, a hospital that is
designated as a specialty hospital in the hospital's Office of
Statewide Health Planning and Development Hospital Annual Disclosure
Report for the hospital's fiscal year ending in the 2007 calendar
year.
   (C) A hospital that satisfies the Medicare criteria to be a
long-term care hospital.
   (D) A small and rural hospital as specified in Section 124840 of
the Health and Safety Code, designated as that in the hospital's
Office of Statewide Health Planning and Development Hospital Annual
Disclosure Report for the hospital's fiscal year ending in the 2007
calendar year.
   (2) "General acute care hospital" shall mean any hospital licensed
pursuant to subdivision (a) of Section 1250 of the Health and Safety
Code.
   (b) Effective January 1, 2011, there shall be imposed on each
general acute care hospital that is not an exempt facility a quality
assurance fee, as a condition of participation in a state-funded
health insurance program, other than the Medi-Cal program.
   (c) (1) The quality assurance fee shall be computed starting on
the effective date of this article and continue through and including
June 30, 2011.
   (2) The method of calculation and collection of the quality
assurance fee shall be determined pursuant to ____.
   (3) The quality assurance fee shall be used solely for the
purposes specified in Article 5.21 (commencing with Section 14167.1)
and Article 5.22 (commencing with Section 14167.31).
   (d) The director shall do all of the following:
   (1) Seek federal approvals or waivers as may be necessary to
implement this article.
   (2) Obtain federal financial participation to the maximum extent
possible with the proceeds from the quality assurance fee paid
pursuant to this article.
   (e) (1) The fee payments and any related federal reimbursement
shall be deposited in the Hospital Quality Assurance Revenue Fund.
   (2) Notwithstanding Section 13340 of the Government Code, any
moneys deposited in the Hospital Quality Assurance Revenue Fund
pursuant to paragraph (1) shall be continuously appropriated, without
regard to fiscal year, as follows:____. 
   SEC. 18.   SEC. 17.   This act is an
urgency statute necessary for the immediate preservation of the
public peace, health, or safety within the meaning of Article IV of
the Constitution and shall go into immediate effect. The facts
constituting the necessity are:
   In order to make the necessary statutory changes to increase
Medi-Cal payments to hospitals and improve access, at the earliest
possible time, it is necessary that this act take effect immediately.